nifty: Nifty fairly valued at 17,000-18,000; close to Rs 1,000 EPS likely in FY24: Pankaj Murarka

“Our approach to the portfolio right now is very pro-cyclical because we believe there is a cyclical recovery in the domestic economy. We like autos because autos are coming out of a tight supply environment in the over the past two years,” says Pankaj MurarkaCIO, Renaissance Investment Managers.

After rebounding for nearly two months, the market slid on Friday. Would there be much more nervousness if you knew that the direction of FII flows or the liquidity situation was going to change and you were worried about the dollar index at around 107?
When it comes to stock markets, there is always a reason to worry because there is always something or the other that might move in a direction that might not reassure investors. Today it’s the dollar index, tomorrow it will be oil, the day after tomorrow it will be something else. That said, from a broader perspective, earnings growth has been quite good over the past quarter and in the next two months we will be entering the first normal festival season after two years.

I still strongly believe that there is strong pent-up demand in the economy and among consumers and businesses and therefore the second half is likely to be very strong or resilient in terms of growth. Now when you tie that to the market and considering that markets tend to discount 12 month forward earnings, India is a market that at the Nifty level is likely to do something close to Rs 1000’s EPS in FY24.

So at around 17,000-18,000 there is roughly a fair valuation for the Nifty index and it is very much in line with where Indian markets have traded on average over the last 15 years . I think the market has reached an area where it is very evenly valued at 5% on either side. The market may remain limited to the index level for some time to come and will have stock and sector specific moves.

Why have media stocks in this phase of the bull market underperformed – either Zee or or?
Consumer Discretionary, overall. to some degree have underperformed over the last six to nine months and that’s also mainly because the major advertisers, the FMCG companies, have seen a big squeeze in profitability over the last three to four quarters.

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Big spenders like Levers and Godrej Consumers or & Gamble have slowed or moderated their advertising spend, which is reflected in a number of media companies. At the beginning of the second half of the year, a company will increase its advertising expenditure and its margins will normalize.

The second half should be a year of stronger growth for media companies across the board and we’ll likely see that growth return to ad spend after a nearly two-year gap when media spend was constrained during Covid. Going forward, the outlook for the sector remains positive.

increased by 90% over the past year. Jefferies believes this is just the start of a secular trend for TVS as they have managed their margins well. He was a weak number three but he has the potential to become a weak number two now?
I would agree with that. Overall two wheeler sales have been slow and we haven’t seen a significant recovery post covid and that goes for not just two wheelers but the whole automotive sector as some of it was driven by supply-side constraints that the entire automotive industry was facing as well as the squeeze on margins it is experiencing due to rising raw material prices.

Now, probably, those two things are behind us, and more importantly, we have strong demand in the automotive sector, especially for TVS. They have the right strategy and we’ve seen some pretty robust or healthy monthly numbers coming in, which basically shows they’ve gained market share.

The strategy in terms of coming together with BMW is doing pretty well for them and probably now with strategic initiatives on electric vehicles as well, it looks like they have a thoughtful strategy in place in terms of what they’re trying to do. So yeah, TVS might be an outlier in that sense, gaining market share in an industry that’s otherwise quite mature in that sense.

What are you looking to buy at a 5% drop and add more at a 10% drop? Would you like to take advantage of a 15% drop?
Our approach to the portfolio at the moment is very pro-cyclical as we believe there is a cyclical recovery in the domestic economy. We like autos because autos are coming out of an environment where supply has been tight for two years. We haven’t really seen the demand momentum that we would otherwise have seen had the sector not been supply constrained. On top of that, the margin headwinds the sector was facing will ease and underlying demand remains strong for automotive as a sector.

Most passenger vehicle manufacturers have a hefty order book or waiting list of cars for them and the same goes for commercial vehicles. Automotive as a sector looks quite exciting from a one to two year perspective and so does Capital Goods as a sector as we have seen clear trends where order intake for most companies of capital goods and engineering have increased very strongly now for nearly three years. quarters in a row.

This is a very clear and strong signal of the revival of the investment cycle and the robustness that these companies are showing in their order intake which will translate into sales over the coming quarters and years. These two sectors are clearly distinguished.

Other than that, we are also excited about the internet as an industry. A lot of these companies that came out with IPOs, after big corrections, are much more reasonably valued now and given the stock price correction I’d like to believe there’s been some sort of pressure on these companies so that they advance their rupture same point. The underlying growth of these businesses remains very strong and some of these businesses are very heavily franchised. In the event of a correction, we would certainly look to buy some of these Internet companies.

Do you want to expand your list to new age internet companies? has gone down a lot?
Absolutely. Look at some of the other traditional industries like steel or cement that have been around for about 50 or 100 years and there are still over 50 significant cement companies or at least 10 major steel companies in India. But in this new generation business, when we talk about food technology, which is an industry that is 10 years old and we already see a consolidation in place because two players control 100% of the market. The industry is already in oligopoly. Strong growth in an oligopolistic industry always creates value for investors over a longer period.

So a lot of these companies went through very massive consolidation early in their life cycle and given the dominant market share of some of these players, that really excites me from a mid- to long term.

So what’s the right way to look at, say, a Policybazaar? For now there is no parallel in terms of platform but we don’t know what will happen to their edge which is technology and distribution arbitrage?
At a slightly higher level. I think the world is in a digital transition. Probably 50 years from now we’ll all be living in a world that’s going to be all digital and these so-called businesses that we call in today’s parlance new age businesses or digital businesses, over the next 10 or 15 years , will have an advantage over traditional business enterprises.

Some of these companies which are sort of mid-cap companies today will become some of India’s leading companies in 15 years time due to the digital pivot and the advantage they have is a very strong moat in their business and we must not underestimate the potential of this.

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